Daily Economic Commentary: United Kingdom

[PipDiddy]

The pound’s price action was as mixed as the colors of Cyclopip’s jerseys as the U.K.’s economic data got tangled with risk sentiment. Cable dropped by 15 pips while Guppy inched 12 pips higher than its open price. Here’s what happened.

The pound bulls dominated the early London session as the PMI reports from the U.K. generally came in better than expected. Activity in the service sector expanded by its fastest pace in five months while the construction PMI just missed expectations of a 50.1 reading by printing at 49.0.

No economic data is scheduled to follow the BRC shop price index report that was released a couple of hours ago. According to the report, prices in BRC-member stores rose by 1.1% in August after growing by 1.0% in July.

Since the docket is empty for today, keep an eye out for any news from the other major economies that might affect appetite for the high-yielding pound. Good luck!

[PipDiddy]

What a topsy-turvy day for the pound! GBP/USD got an extra dose of volatility yesterday as it dipped to a low of 1.5826 then jumped to a high of 1.5935 before closing at 1.5901. What the heck happened during yesterday's trading sessions?

Do you know what's the most surprising part about yesterday's strong cable rally? It's the fact that the U.K. didn't release any economic reports at all! Apart from the improvement in risk sentiment, traders' positioning ahead of the BOE monetary policy statement was probably another reason that boosted the pound against its major counterparts.

The Bank of England is set to make its monetary policy announcement at 11:00 am GMT today and they are expected to keep rates unchanged at 0.50% and make no additional asset purchases. Note that the recently held London Olympics games had a positive impact on spending and economic growth last month, which suggests that BOE Governor King and his men might be a little more upbeat with their assessment.

[PipDiddy]

Score another one for the pound! Like a cobra waiting to strike, the pound was ever so still and silent against the dollar during the Tokyo and London sessions. But once the New York session began, it made its move, breaking out of consolidation to push the pair higher. In the end, Cable closed at 1.5938, up 37 pips on the day.

Surprisingly enough, it wasn't really the BOE rate statement that got pound bulls all riled up because the central bank's rate decision was no shocker. The central bank decided to leave monetary policy unchanged and keep rates at 0.50% - exactly what the markets had expected! With recent reports coming in more upbeat than expected, the BOE had no reason to rush into easing.

To be honest, I'm particularly interested in hearing exactly how the central bank evaluated the economy's recent performance. But since the rate decision wasn't accompanied with a statement, it seems like we'll have to wait a couple weeks more for the MPC meeting minutes to be released so we can get a peek into the minds of U.K. policymakers.

Today, the action will continue with manufacturing production (seen printing a 2.1% rise) and PPI input data (seen at 1.6%) at 8:30 am GMT. Both of these are considered high-impact reports, so they have the potential to move the markets especially if they print surprising results. Good luck, fellas! Make the last day of the week count!

[PipDiddy]

Up, up, and away! GBP/USD soared after the U.S. released its NFP report last Friday as the pair broke above the 1.6000 major psychological resistance. GBP/USD reached a high of 1.6035 before it closed at 1.6008. Will it be able to hold on to its gains this week?

The U.K. released a couple of better than expected data last Friday, with its manufacturing production and PPI reports surpassing expectations. Manufacturing production posted a 3.2% rebound for July, better than the estimated 2.1% increase and erasing most of June's 2.9% drop. Meanwhile, PPI input prices showed a 2.0% increase while PPI output prices posted a 0.5% uptick.

Additionally, GBP/USD was able to get another boost from weaker than expected U.S. NFP figures, which showed that net hiring for August came in below 100K. This sparked a fresh round of QE3 speculations, which triggered strong USD selling.

The only major report on the U.K.'s schedule for this week is its claimant count change report due Wednesday 8:30 am GMT. For today, a medium-tier report in the form of the RICS house price balance is set for release around 11:00 pm GMT. 22% of surveyors are expected to report that house prices dropped in their areas last month, which would be slightly better news compared to the 24% figure seen last July. A weaker than expected reading might force the pound to return some of its recent gains so make sure you keep close tabs on this report if you're trading pound pairs!

[PipDiddy]

You didn't think the pound would just keep rising, did you? After posting three straight days of gains, it was bound to pull back! GBP/USD started the week by gapping up over the weekend, but it spent the rest of the day trading below the week open. From its opening price of 1.6017, it slipped back below the 1.6000 handle to post a 28-pip loss.

It seems the aggressive bullishness for the pound that we saw last Friday didn't spill over to this week, eh? But maybe today's release will change that.

Earlier today, we got an upside surprise in the RICS house price balance report, which printed a decline of 19% instead of 22%. That house prices fell at a slower pace last month seems to be lifting up home sellers' spirits. In fact, according to the study, those in the business feel optimistic about the outlook for the housing industry, believing that the government's recent actions will help raise home sales in the coming year.

Later today, we'll take a look at trade balance data at 8:30 am GMT. Look for the U.K.'s deficit to narrow from 10.1 billion GBP to 8.9 billion GBP.

[PipDiddy]

Mixed results for the pound yesterday, as it stumbled against the yen, but rallied hard versus the dollar. GBP/JPY closed lower for the third consecutive day, closing 19 pips lower at 124.93, while GBP/USD closed at a new high at 1.6070, up 81 pips from its opening price.

The pound may have gotten a small boost from trade balance figures, which showed that the U.K. trimmed its budget deficit slightly, as it posted a deficit of just 7.1 billion GBP last July. Not only was this better than June’s figure of a 10.1 billion GBP deficit, but was also better than the projected 8.9 billion GBP deficit.

Why are better trade figures significant? Take note that the Bank of England already acknowledged that a strengthening pound may make British exports less attractive to importers. A tightening deficit signals that export demand is improving, which gives the BOE less reason to implement additional liquidity measures in order to weaken the pound.

For today, we’ve got U.K. employment data headed our way at 8:30 am GMT. Forecasts are that an additional 100 people filed for jobless benefits last month, while the unemployment rate is projected to remain steady at 8.0%. If these reports come in better than expected, it could give the pound a nice bump up during the London session.

[PipDiddy]

With help from yesterday's awesomely upbeat employment report, Cable racked up some more pips as it climbed from its opening price of 1.6070 to end the day at the 1.6100 handle. Will the pound continue to gain ground against the dollar today?

Stats from last month reveal that the number of individuals who claimed unemployment benefits dropped by 15,000. Awesome results, huh? But it's much more awesome when compared to the increase of 100 that most had predicted. And take note, homies, this is actually the biggest monthly drop in 2 years!

Apparently, hiring picked up last month, which explains why many workers reentered the work force. In turn, this led the unemployment rate to unexpectedly tick up from 8.0% to 8.1%.

While all of this is generally good news, it'll probably take more than this to get the BOE to lean further away from monetary easing.

Nothing major on the economic calendar from the U.K. today. But keep in mind that the FOMC statement is scheduled today at 4:30 pm GMT. This is an event not to be missed, fellas!

[PipDiddy]

Due to the Federal Reserve’s QE3 announcement, the pound was able to jump to a fresh 4-month high versus the safe haven dollar. As of this writing, the pound is sitting at 1.6150 against the dollar, which is a very respectable 75 pips higher from its lowest point yesterday.

The Fed delivered what the market expected… and more. Instead of simply expanding its QE program by 40 billion USD a month, the Fed also attached an “open-ended” clause. The Fed indicated that it would undertake additional purchases and implement other monetary policy tools as appropriate if the labor market does not improve significantly.

No data scheduled for release today, but given the big news released yesterday from the Fed yesterday, we could still see a lot of volatility from the pound. It’s important to note that the Fed’s announcement came AFTER the European trading session, which means European traders still haven’t adjusted to the news. Let’s see how they react later once London opens.

[PipDiddy]

Despite the lack of economic reports, the pound still managed to rake in pips in Friday's trading. GBP/USD rallied past the 1.6200 handle after opening at 1.6151. By the end of the New York session, the pair had settled at 1.6227.

It would seem that Ben Bernanke's strong dovish words in Thursday's FOMC Statement still affected price action up until Friday. Consequently, most higher-yielding currencies extended their rallies against the dollar.

Whether or not the same sentiment would carry on in today's trading, we have yet to find out. So make sure you keep tabs on the market's mood, ayt? If risk appetite is still up, I wouldn't be surprised to see the pound extend its winning streak to five!

[PipDiddy]

Yo, Mr. Pound, take your place atop the currency rankings! The pound was the only major currency to outpace the dollar yesterday, as GBP/USD closed 25 pips higher at 1.6245. Will we see a repeat performance today?

For today, we’ve got inflation data on tap as the CPI report is scheduled for release at 8:30 am GMT.

Early forecasts are predicting that inflation will tick in at 2.5%, slightly lower than last months’ release of 2.6%. Take note that inflation is way off its highs from a year ago, where it peaked at a ridiculous 5.2%. Now that inflation is well inching closer to the BOE’s target of 2.0%, the BOE has a lot more leeway with regards to monetary policy.

Aside from that report, make sure you check out my euro zone commentary for more updates on what’s happening in the rest of Europe!